Exhibit 6-17
-Consider Exhibit 6-17 which represents the market demand for DVDs. If the price of DVDs is $20 how much is consumer's surplus?

Question

Exhibit 6-17 
-Consider Exhibit 6-17 which represents the market demand for DVDs. If the price of DVDs is $20 how much is consumer's surplus?

Quizplus · Accepted Answer

When the price of DVDs is $20, the quantity demanded is 3 million. To find consumer's surplus, we need to calculate the area below the demand curve but above the price ($20) up to the quantity demanded (3 million). This is a triangular area with a base of 3 million and a height of $20 - $10 = $10 (the vertical distance between the demand curve and the price). Therefore, consumer's surplus is 1/2 x base x height = 1/2 x 3 million x $10 = $15 million. However, this is only half of the total consumer's surplus since we are only considering the contribution of buyers above the price ($20). The other half of consumer's surplus comes from buyers who would have been willing to pay more than $20 but get to buy the DVD for $20. Since we don't have information on the price elasticity of demand, we cannot calculate this additional consumer's surplus. Therefore, the correct answer is C) $40, which is half of the total consumer's surplus.

Exhibit 6-17 -Consider Exhibit 6-17 Which Represents the Market Demand for DVDs